This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The case concerns the interpretation of a right of first refusal (ROFR) provision in a limited partnership agreement. The dispute arose when the corporate great-great-grandparent of one of the general partners, Aircoa Hospitality Services, Inc. (AHS), was sold in a stock transfer transaction. Plaintiffs argued that this sale triggered the ROFR, requiring AHS to offer its partnership interest to the other partners before the sale. AHS denied that the transaction triggered the ROFR, leading to litigation (paras 1, 5-7).
Procedural History
- District Court of Santa Fe County: Held that the ROFR was triggered by the stock transfer and ordered specific performance, setting the exercise price at $3,967,977. Claims for breach of fiduciary duty, breach of good faith, and punitive damages were dismissed (paras 1, 11).
Parties' Submissions
- Plaintiffs (HBS Partnership and NZ EDP, Ltd. Co.): Argued that the ROFR was triggered by the indirect transfer of AHS's equity interest due to the change in control resulting from the sale of its corporate great-great-grandparent. They sought specific performance and damages, asserting that the ROFR was intended to broadly cover such transactions (paras 7-8, 18).
- Defendant (AHS): Contended that the ROFR was not triggered because there was no direct transfer of its partnership interest or equity ownership. AHS argued for a narrow interpretation of the ROFR, emphasizing that the sale of a parent corporation's stock does not constitute a transfer of the subsidiary's assets or interests (paras 14-16).
Legal Issues
- Was the right of first refusal (ROFR) triggered by the sale of the corporate great-great-grandparent of AHS?
- What is the appropriate valuation method for determining the exercise price under the ROFR?
Disposition
- The Court of Appeals affirmed the district court's decision that the ROFR was triggered by the stock transfer and upheld the exercise price of $3,967,977 (paras 1, 44-45).
Reasons
Per Bustamante CJ. (Fry and Kennedy JJ. concurring):
Interpretation of the ROFR: The Court found the ROFR provisions unambiguous and interpreted them broadly, consistent with the language of Article 9.5, which explicitly includes indirect transfers and changes in control. The Court rejected AHS's argument for a narrow construction, emphasizing that the ROFR was designed to prevent uninvited outsiders from gaining control of the partnership (paras 20-24).
Triggering of the ROFR: The Court held that the sale of AHS's corporate great-great-grandparent constituted an indirect transfer of equity interest in AHS, as it resulted in a change of control. The broad language of the ROFR, including terms like "any direct or indirect transfer," supported this conclusion (paras 21-28).
Valuation of the Exercise Price: The Court upheld the district court's valuation of $3,967,977, which was based on the business value of the Hotel as determined by expert testimony and post-closing appraisals. The Court found this approach reasonable and supported by substantial evidence, rejecting the Plaintiffs' argument for a higher valuation based solely on the real property value (paras 29-39).
Settlement Payment: The Court agreed with the district court's decision not to credit AHS for a $695,638.27 settlement payment made in a separate lawsuit, as it was inconsistent with the ROFR's terms and unrelated to the valuation of the partnership interest at the time of the sale (paras 40-43).